Venturing Insights #2 - Learning Open Innovation from Lao Tzu
In the first post we discovered what is Innovation. Now we will learn from Lao Tzu how companies should approach Innovation in these VUCA (volatile, uncertain, complex, ambiguous) times.
Men are born soft and supple;
dead, they are stiff and hard.
Plants are born tender and pliant;
dead, they are brittle and dry.Thus whoever is stiff and inflexible
is a disciple of death.
Whoever is soft and yielding
is a disciple of life.The hard and stiff will be broken.
The soft and supple will prevail.- Lao Tzu
I read this quote in the book Atomic Habits by James Clear, and my professional and academic inclination immediately came to mind.
Keep your identity small
James Clear was connecting this quote from Lao Tzu, to the importance of maintaining flexibility in one's identity to facilitate personal growth and adaptation to life's challenges.
When individuals cling rigidly to a single identity, such as their job title or a specific role they play, they limit their capacity to evolve and adapt. This rigidity can make them vulnerable to setbacks, as their entire sense of self becomes tied to one aspect of their life.
By reframing identity from specific roles to overarching characteristics or principles, individuals can retain a sense of self even as circumstances change. For instance, instead of defining oneself solely as "the CEO," one might identify as someone who thrives on creation and value creation.
This redefined identity remains consistent across different roles and situations, providing a stable foundation for navigating life's challenges. Rather than resisting change, this adaptable identity aligns with shifting circumstances, allowing individuals to embrace new opportunities for growth and development.
Identity Rigidity → Closed Innovation
Just as individuals who cling too tightly to a singular identity limit their growth and adaptability, organizations that confine themselves to their current (and perhaps successful) identity restrict their ability to innovate and evolve. This is one of the approaches that leads to a Closed Innovation Model, which was a very common way to develop and market new products or services until few years ago.
Closed Innovation involves relying solely on internal resources, ideas, and processes, while rejecting external input and collaboration.
Much like individuals with rigid identities, organizations entrenched in closed innovation are often resistant to new perspectives, technologies, and opportunities.
They believe that they have all the answers within their own walls and fail to recognize the value of external knowledge and expertise.
The Problem With Closed Innovation
The traditional closed innovation model, while once successful, is ill-equipped to address the rapid obsolescence of technologies and products seen in today's market.
Moreover, the longer lifecycle inherent in closed innovation cannot match the volatility and pace of change prevalent in today's business landscape. This lack of agility leads to high fixed costs and an inability to swiftly respond to market shifts and emerging trends.
Closed innovation is more expensive too. Closed innovation models require organizations to offer competitive salaries, benefits, and incentives to lure skilled professionals away from other companies. This approach may also involve significant investment in training and development programs to nurture internal talent and keep them up-to-date with the latest advancements in their respective fields.
Additionally, in today's interconnected world, skilled professionals frequently move between companies, bringing valuable insights and experiences with them.
Furthermore, closed innovation often results in a narrow focus, inhibiting organizations from deeply exploring specific areas of expertise.
Today's innovation demands cross-fertilization, bringing together diverse perspectives and expertise from various fields to solve complex problems and drive breakthrough innovation.
Identity Flexibility → Open Innovation
Just as individuals who maintain a flexible identity are better equipped to adapt and thrive in various circumstances, organizations that embrace open innovation exhibit a similar adaptability and resilience in the face of change.
According to the Open Innovation model, popularized by Henry William Chesbrough, companies must rely on a model that considers not only internal ideas and resources but also tools and expertise from external sources. These sources include startups, universities, research institutions, consultants, and other companies, both competitors and non-competitors.
In both cases, flexibility is key to success. Individuals with a flexible identity can redefine themselves to keep important aspects intact while embracing new roles or circumstances. Similarly, organizations practicing open innovation are flexible in their approach to sourcing ideas, collaborating with external partners, and adapting their strategies based on market dynamics.
In Open Innovation, the paradigm shifts from Know How to Know Where, from Research & Develop to Connect and Develop.
Open Innovation can be approached in various ways. One thing is certain, though: it's a step-by-step process. We'll delve deeper into this topic in our upcoming posts.
Reaching Organizational Ambidexterity
Organizational ambidexterity denotes an organization's capacity to efficiently manage its current operations while also being flexible enough to address future changes in demand.
Much like ambidexterity entails proficiency with both the left and right hands, organizational ambidexterity necessitates employing both exploration and exploitation strategies for success. This concept aligns closely with Open Innovation, as it emphasizes the need for companies to leverage external and internal resources simultaneously to innovate and adapt to evolving market conditions.
The role of VCs and CVCs in this Context
Open innovation initiatives often involve partnerships and collaborations between startups and established companies, sometimes facilitated by venture capital.
Startups benefit from access to the resources, networks, and industry knowledge of corporate partners, while corporations gain access to cutting-edge technologies, fresh perspectives, and entrepreneurial agility.
While both VCs and CVCs aim to support startups, they diverge in their fundamental objectives.
VCs pursue significant financial returns driven by external investments and evaluated through profitable exits. Conversely, the primary focus of CVCs is generally more strategic in nature. However, both can play a significant role in bridging the gap between startups and corporations.
Corporate venture capital (CVC) accelerates open innovation by enabling established corporations to access external innovation from startups. Through CVC investments, corporations can collaborate with startups, leverage their expertise, and bring new ideas to market faster. This cross-pollination of ideas helps mitigate disruption risk, diversify portfolios, and drive business growth in today's dynamic marketplace.
Venture capital firms (VC) specializing in open innovation may actively facilitate collaboration between startups and corporations, acting as intermediaries and matchmakers. These firms identify promising startups, facilitate introductions and partnerships, and provide strategic guidance to both parties to maximize the value of their collaboration.
In conclusion, just as Lao Tzu's wisdom teaches us the power of flexibility over rigidity, the transition from closed to open innovation is driven by adaptability.
Venture Capital and Corporate Venturing embody this philosophy, fostering collaboration between startups and established companies.
In Open Road Ventures, we’ll delve into how these forces can propel success in automotive and the broader mobility sector, embracing change and innovation in a sustainable way.
A few closing words about Pivoting
Identity flexibility is also crucial for emerging startups and entrepreneurs, particularly in relation to the concept of Pivoting.
In the lean startup methodology, pivoting refers to the act of making significant changes to a company's business model, product, or strategy based on feedback and insights gained from early experimentation and customer interactions.
Flexibility is the cornerstone of competitiveness and survival, indispensable for individuals, entrepreneurs, startups, and corporations alike.